It is my responsibility, as a Tax Attorney and CPA in Atlanta, Georgia to stay up-to-date with upcoming tax changes. I recommend that you plan now for the tax changes coming in 2013. Below is part II of the tax changes and you can review part I of this tax alert to be more prepared.

#3. An increase in Medicare tax on certain wages. The amount of Medicare tax you pay on wages and self-employment income is scheduled to go up next year. When you’re single and your wages are greater than $200,000, your employer will withhold an additional 0.9% of Medicare tax from your paycheck. Are you self-employed? The tax applies when net self-employment income exceeds the threshold. The income threshold is $250,000 for married couples.

Planning move: If you’re self-employed, review the way your business is organized. While you always want to pay yourself a reasonable amount of compensation, some entity types can allow for flexibility in the timing of wages or salary.

#4. A new Medicare tax on unearned income. You probably associate Medicare tax with earned income – that is, the 1.45% tax your employer deducts from your pay. But a provision in the 2010 health care laws extends the Medicare tax to certain unearned income, beginning in 2013. The new surtax is a flat rate of 3.8%, and will apply to interest, dividends, capital gains, annuities, royalties, and rents. It kicks in when your AGI exceeds $250,000 (for married filing jointly). When you file as single, the AGI threshold is $200,000.

Planning move: Consider adding tax-exempt bonds to your portfolio. The interest is not subject to the new tax. Roth conversions and selling assets with capital gains may also be a wise move in 2012.

Many other tax law changes are expected in 2013. Timely planning is essential for preserving tax- saving opportunities. Please give us a call to discuss strategies to put in place now to maximize your benefits.

What’s the summertime forecast? From a tax perspective, the outlook calls for planning now to prepare for changes gathering on the horizon – specifically, provisions currently expected to take effect in January 2013. Here are four new rules to think about during your mid-year tax review.

1. A decrease in tax-free contributions to your flexible spending account. Starting in January 2013, the maximum you can contribute to your FSA will be $2,500. In addition, the “use it or lose it” feature of FSAs means you won’t be able to carry any 2012 excess remaining in your account into 2013 (unless your plan provides a 2½ month grace period for using prior-year funds).

Planning move: Schedule elective medical procedures during the last half of 2012.

2. An increase in the threshold for claiming the itemized medical expenses deduction. Do you itemize? For 2012, you can claim a deduction on your federal income tax return for qualified medical expenses that exceed 7.5% of your adjusted gross income (AGI).

Beginning in 2013, if you’re under age 65, your medical expenses will have to exceed 10% of your AGI to be deductible. This is the same percentage applied to qualified medical expenses when calculating the alternative minimum tax.

Planning move: Review your itemized deductions for 2012 to determine whether accelerating or delaying deductions makes the most sense for you. What to keep in mind: phase-outs and other limitations to itemized deductions that were in effect in prior years, as these may return in 2013.

Part II of this blog post will be published soon so come back soon to review more 2013 changes.

I recently published an article to Google Knol titled: “Independent Contractor or Employee?”. To find out the difference between an independent contractor and employee, read the full article here on the blog.

Tax law is not easy. But it is crucial for both employers and the people they hire, whether they are employees or independent contractors, to have a basic understanding of their tax status and responsibilities to the Internal Revenue Service. As an expert tax attorney in Atlanta, I wanted to share some answers to help those of you with questions.

Whether you’re signing the paychecks or cashing them, you need to know whether a worker is classified as an employee or an independent contractor. The IRS expects each party to be familiar with their tax liabilities and to cleave to them. Failing to do so can result in a massive back tax headache and a potential tax levy. You don’t want to get audited and investigated for not paying payroll taxes on someone you thought was a contractor, but the government classified as an employee.

Talk to a tax lawyer and get the answers to your questions now, before your assumptions inadvertently create a tax problem or levy. A qualified CPA firm or tax attorney can help guide your business decisions and answer specific questions unique to your situation. Here are some points to consider.

• There are exceptions, but generally speaking, an employer withholds and/or pays from an employee’s paycheck: Federal and State income taxes, Social Security and Medicare taxes and unemployment tax.

• An independent contractor is not subject to any withholding. He is responsible for filing an annual return and paying his quarterly estimated self-employment taxes.

Failure on the part of a contractor to classify himself accurately and pay taxes quarterly can result in investigation by the IRS and the need to pay back taxes, interest and penalties. Likewise, an employer who tries to save money by treating its employees like contractors and not paying applicable employee taxes may be subject to an IRS and/or state audit and paying back taxes, interest and penalties and a possible tax levy. (See below for the exception.) Any top tax lawyer will tell you that the risk is not worth the back tax trouble you can get into.

If you are unfamiliar with tax law and are not sure whether someone qualifies as an independent contractor, you can use the three-part litmus test the IRS applies to make a determination. According to http://www.irs.gov, these elements are:

• “Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.” This means that an employer expects people to show up at a specific place and a specific time and micro-manages the project. This applies equally to employees who are doing such disparate things as building a fence or writing an annual report.

• “Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job.” Does the employer provide you with the necessary shovels and laptops, or are you responsible for buying, maintaining and replacing your own tools? Are you free to work for other non-competing firms while you’re completing your current project?

• “Type of Relationship factor relates to how the workers and the business owner perceive their relationship.” Does the employee fit into a slot in an established hierarchy within an organization, or is the contractor more of a partner, working in tandem with the client toward the project’s successful conclusion?

The bottom line is how much control a company has over the work being done. Being a professional tax attorney in Georgia, I like to say that if a company is telling a worker not only what to do, but when, where and how to do it, providing the tools to do it and expecting him to clock in and out while he does it, he is probably an employee. If the worker is free to complete his tasks off-site within his own timeframe and on his own equipment while working for other clients at the same time, he is probably a contractor.

As an employer or a contractor, you know how crucial it is to keep meticulous records in order to avoid back tax problems. Fortunately, tax law has provided a way to determine whether someone is an employee or contractor based on whether they filled out a W-2 or a 1099. Employees fill out a W-2. An experienced independent contractor will ask for a 1099 and already be familiar with his responsibilities to the IRS. If a worker asks for a W-2, and you weren’t planning to put him on the payroll, that’s a signal for you or a tax attorney to talk with him and get things squared away. Do this before any money exchanges hands and creates a back tax problem or tax levy in the future.

If one or both parties are unfamiliar with how to classify workers and there is a dispute over whether they are contractors or employees, either party can ask the IRS to make a determination by filing a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS. By doing this, everyone walks into the employment agreement knowing what their tax responsibilities are. This will go a long way toward creating a smooth working relationship, whether you’re punching a clock or not.

If an employer has been hiring contractors, but upon consultation with their tax lawyer decides they would like to reclassify some of the contractors as employees, they might be eligible to participate in a new program recently launched by the IRS. This new program comes with amnesty from paying the usual hefty penalties associated with this switch.

According to http://www.irs.gov, the Voluntary Classification Settlement Program “is a new program developed by the IRS that allows taxpayers to voluntarily reclassify their workers as employees for future tax periods for employment tax purposes. Under the VCSP, a taxpayer will pay 10 percent of the amount of employment taxes calculated under the reduced rates of section 3509(a) of the Internal Revenue Code for the compensation paid for the most recent tax year to the workers being reclassified under the VCSP. In addition, the taxpayer will not be liable for any interest and penalties on the payment under the VCSP, and will not be audited for employment tax purposes for prior years with respect to the worker classification of the workers.”

For more information on how to avoid a back tax problem or tax levy, please visit www.irs.gov, or get the professional advice of a CPA or tax lawyer in your community.

About Jeffrey S. Gartzman, Atlanta Tax Attorney and Certified Public Accountant
Jeffrey S. Gartzman is an accomplished Atlanta tax attorney and CPA who has been practicing tax law in Atlanta for nearly 30 years. He will help you resolve IRS and state tax problems, find tax relief and settle tax debt. Jeffrey S. Gartzman has a Master of Laws (LL.M.) in Tax from Emory University School of Law. Jeffrey S. Gartzman is a former IRS Taxpayer Education Program instructor. He is also an accredited Personal Financial Specialist with the American Institute of CPAs. Mr. Gartzman is a member of the Atlanta Bar Association, State Bar of Georgia, Georgia Society of Certified Public Accountants, American Institute of Certified Public Accountants, and other professional associations.

For most people, the month of June is linked to happy things like wedding season and the beginning of summer. But for Atlanta tax attorneys and folks with one or more foreign bank accounts, June 30 marks the annual Foreign Bank Account Report filing deadline.

The FBAR can be misunderstood by many folks who file one or should be filing one – but aren’t. If you have any questions, you should call an Atlanta tax lawyer for tax help.

What you need to know about Foreign Bank Account Reports:

• The FBAR is not an IRS form, but a Treasury Department form. It cannot be filed electronically and it is due on June 30. Postmarks of that date are not acceptable, it must be in their hands.
• If you pay taxes in the US as a citizen, resident or entity, and at any point during the year (no matter how briefly) you have $10,000 or more in one or more foreign accounts, you must file a FBAR. The $10,000 threshold is determined by using the highest account balance during the year and converting it to US dollars with the exchange rate of December 31 of the year in question. If you have any questions, call an Atlanta tax attorney.
• Includable assets might be brokerage and bank accounts, pooled investments, offshore mutual funds, trusts, annuities, life insurance, pension plans.
• A foreign bank account is defined by location. A US financial institution’s branch overseas is fair game. An offshore bank’s branch is not in the US.

This is not something to mess with. Failure to conform to these rules bears a heavy penalty. Violators are fined $100,000 or half of the value of the account, for every year that was not filed. This is true, even when no tax was actually owed or in arrears. Save yourself a lot of worry and money and consult with an Atlanta tax lawyer for tax help today.

Taxpayers in Georgia have learned the hard way that the State of Georgia, Department of Revenue has been aggressive in tax collection efforts in recent years. For people who owe state back taxes or can’t afford to pay their Georgia state income taxes, filing delinquent tax returns can be stressful.

Atlanta taxpayers should know the Georgia Department of Revenue is under new leadership this year. As a member of the tax section leadership team for the Georgia Society of CPAs, I had the chance to hear the new Tax Commissioner Mr. Douglas J. MacGinnite, Esq. speak at our recent annual meeting with the Georgia Department of Revenue. At this annual Executive Roundtable, Atlanta tax attorneys and CPAs who are members of the Society participate in a discussion with government leaders regarding taxpayer concerns – in the spirit of making our tax system work better for everyone.

With the incoming tax law leadership at the helm, I find myself optimistic that there will be opportunities for flexibility for taxpayers to settle their state tax debt, back taxes, and in negotiating tax audits successfully. As an Atlanta tax attorney, I look forward to more opportunity for me to help my clients resolve their tax problems.

Jeffrey S. Gartzman has 28 years of experience as an Atlanta CPA and tax attorney. As a long standing member of the Georgia Society of CPAs Tax Section Leadership Team, the Georgia State Bar Tax Section, and the Atlanta Bar Association, Mr. Gartzman holds positions of leadership where he advocates for taxpayer solutions in collaboration with state government. Contact Gartzman Tax Law to learn about your opportunities to reduce tax debt and pay IRS back taxes. Call the Gartzman Law Firm at (770) 939-7710 today.